Commissioner of Taxation v Bendel

Gleewin Pty Ltd, as trustee of the Steven Bendel 2005 Discretionary Trust, resolved in each of the income years ended 30 June 2014 to 30 June 2017 to 'set aside' defined percentages of the trust's net income for Gleewin Investments Pty Ltd, a corporate beneficiary. Under cl 3(5) of the trust deed, amounts set aside ceased to form part of the general trust fund and were held on a separate trust 'pending payment'. Gleewin did not pay the amounts to Gleewin Investments, and Gleewin Investments did not call for payment. Mr Bendel was the sole shareholder and director of both companies and controlled all entities. Much of the money to which Gleewin Investments was presently entitled was lent by the trust to Mr Bendel. Gleewin Investments included the set-aside amounts in its assessable income under s 97(1)(a) of the ITAA 1936. The Commissioner issued amended assessments contending that the unpaid present entitlements constituted 'loans' within the expanded definition in s 109D(3), being either a 'provision of credit or any other form of financial accommodation' under s 109D(3)(b) or transactions which 'in substance' effected loans under s 109D(3)(d). The Full Federal Court dismissed the Commissioner's appeal. The Commissioner appealed to the High Court. The appeal was dismissed by a 5-2 majority.

• Whether a trustee's resolution to 'set aside' net income for a corporate beneficiary, under a trust deed requiring set-aside amounts to be held on separate trust 'pending payment', creates an unconditional duty to pay (and thus a debtor/creditor relationship)
• Whether valid separate trusts were created over the set-aside amounts where trust property was identified by reference to the statutory concept of 'net income' under s 95 of the ITAA 1936
• Whether the forbearance of a private company beneficiary in not demanding payment of an unpaid present entitlement constitutes a 'provision of credit or any other form of financial accommodation' within s 109D(3)(b) of the ITAA 1936
• Whether the forbearance of a private company beneficiary in not demanding payment constitutes a 'transaction which in substance effects a loan of money' within s 109D(3)(d) of the ITAA 1936
• Whether the expanded definition of 'loan' in s 109D(3) requires some form of obligation to repay an amount or value supplied
• Whether the presence of Subdivision EA (s 109XA) in Division 7A undermines the Commissioner's construction of s 109D(3) as encompassing unpaid present entitlements

• ratioFor the purposes of s 109D(3)(b) of the ITAA 1936, the 'provision of credit or any other form of financial accommodation' requires some initial or anterior transfer of value or the supply or grant of pecuniary assistance involving some bilateral activity. A private company beneficiary's mere inactivity — its failure to demand payment of an unpaid present entitlement — does not constitute the provision of financial accommodation. — established [[72], [73]]
• ratioFor the purposes of s 109D(3)(d) of the ITAA 1936, simply doing nothing, or acquiescing to the retention of funds, is not a 'transaction which in substance effects a loan of money'. The word 'transaction' by its ordinary meaning refers to some interchange or interaction between entities. — established [[74]]
• ratioThe expanded notion of a 'loan' in s 109D(3) still requires some form of an obligation to repay an amount or value supplied. This is expressly so in s 109D(3)(a), (c) and (d), and implicitly so in s 109D(3)(b). However, s 109D is not limited to transfers of money; it extends to any transfer of value from a private company, including transfers of property or supplies of services, burdened with an obligation of repayment. — established — refining the Full Court's holding that s 109D(3) is limited to transfers of 'an identifiable principal sum' [[76]]
• ratioA trustee resolution to 'set aside' net income for a beneficiary under a trust deed that provides for amounts set aside to be held on a separate trust 'pending payment' does not create an unconditional duty to pay the beneficiary. The phrase 'pending payment' signifies a state of affairs anterior to payment, and something more must occur — a call for payment by the beneficiary or an admission of indebtedness by the trustee — before an unconditional duty to pay arises. — established [[37], [38], [39], [40], [41], [42]]
• ratioWhether a resolution by a trustee creates an unconditional duty to pay a beneficiary (and thus a debtor/creditor relationship) turns upon the terms of the relevant trust deed, the particular language of the resolution, and the actions of the beneficiary. — established — synthesising principles from prior authorities into a tripartite test [[31], [32], [33], [34], [35], [36]]
• ratioWhere a trust deed defines 'net income' by reference to s 95 of the ITAA 1936, a resolution setting aside defined percentages of that net income for beneficiaries identifies with sufficient certainty the property which is the subject of separate trusts. The net income is ascertainable as a proportion of the trustee's trust account at the end of each year of income. — established — extending the principle from [2001] HCA 68 to net income defined by statutory formula [[48], [49], [50]]
• ratioA trustee who admits to having an unconditional obligation to pay a specified amount of money to a beneficiary can thereby become liable to an action at law for the recovery of that amount as money had and received, overlaying the equitable relationship of trustee and beneficiary with the legal relationship of debtor and creditor. — applied — equivocal accounting entries without supporting evidence or factual findings do not constitute such an admission [[29], [30], [52], [53], [54], [55], [56], [57]]
• ratioThe legislative history of Division 7A — including the enactment of former s 109UB, the Board of Taxation's report, and the enactment of Subdivision EA — demonstrates that Parliament chose to tax the shareholder or associate who received the economic value of unpaid present entitlements, rather than the trustee or the private company beneficiary. The Commissioner's construction of s 109D(3) was inconsistent with that legislative choice. — established [[79], [80], [81], [82], [83], [84]]
• ratioThe presence of s 109F(6) — which deems a debt forgiven when a reasonable person would conclude the private company will not insist on payment — is inconsistent with construing s 109D(3) as applying to a private company that merely does not insist upon the performance of an obligation to repay it. If s 109D(3) applied to such forbearance, s 109F(6) would be rendered incoherent. — established — contextual argument against the Commissioner's construction [[77], [78]]
• ratioDivision 7A operates on an objective basis. The various intentions or purposes of the transfers of value deemed to be dividends are to be objectively ascertained. The provisions deploy objective tests turning on the hypothetical conclusion of a 'reasonable person' and do not turn on the subjective controlling mind of a private company. — established [[78]]
• obiters 109D is not limited to transfers of money but extends to any transfer of value from a private company, including transfers of property or supplies of services, burdened with an obligation of repayment of the value supplied. To that extent, the majority differed from the Full Court's reasoning that s 109D(3) is limited to transfers of 'an identifiable principal sum'. — obiter — observation broadening the scope of s 109D beyond money while maintaining the repayment requirement [[76]]
• obiterIf the Commissioner's construction were correct, a private company beneficiary able to invoke the rule in Saunders v Vautier would be taken to have made a loan to a trustee for the period during which the beneficiary could have called for the trust to be terminated but did not — described as a 'highly improbable outcome'. — obiter — reductio ad absurdum observation [[74]]

• applied Fischer v Nemeske Pty Ltd [[2016] HCA 11] — The majority applied the principles concerning when a trustee-beneficiary relationship becomes overlaid with a debtor-creditor relationship, including the significance of trustee admissions of indebtedness and the circumstances in which an action for money had and received arises.
• applied and extended Roxborough v Rothmans of Pall Mall Australia Ltd [[2001] HCA 68] — The majority extended the principle concerning certainty of trust subject matter where property is a proportion of proceeds, applying it to net income of a trust estate defined by the statutory formula in s 95 of the ITAA 1936.
• applied Palmanova Pty Ltd v Commonwealth of Australia [[2025] HCA 35] — Applied at [4] in the majority reasoning.
• referred Commissioner of Taxation v Bendel [[2025] FCAFC 15] — The Full Federal Court decision below. The majority upheld the result but refined the reasoning, broadening the scope of s 109D beyond transfers of 'an identifiable principal sum' while maintaining the core requirement of an obligation to repay.
• referred International Litigation Partners Pte Ltd v Chameleon Mining NL (Receivers and Managers Appointed) [[2012] HCA 45] — Referred to in the majority's analysis of the trust deed provisions and the creation of separate trusts.
• referred CHIANTI PTY LTD -v- LEUME PTY LTD [[2007] WASCA 270] — Referred to in the majority's analysis of when trustee resolutions create debtor/creditor relationships and the contextual analysis of Division 7A.
• referred CPT Custodian Pty Ltd v Commissioner of State Revenue [[2005] HCA 53] — Referred to in the majority's analysis of the trust deed provisions.
• referred SkyCity Adelaide Pty Ltd v Treasurer of South Australia [[2024] HCA 37] — Referred to in the majority's analysis of the trust deed provisions and the creation of separate trusts.
• referred Commissioner of Taxation v Carter [[2022] HCA 10] — Referred to in the judgment.
• referred Tilley v Official Receiver In Bankruptcy [[1960] HCA 86] — Referred to in the majority's analysis of the meaning of 'transaction' in s 109D(3)(d).
• referred Kauter v Hilton [[1953] HCA 95] — Referred to in the dissenting judgment of Jagot J.
• referred SZTAL v Minister for Immigration and Border Protection; SZTGM v Minister for Immigration and Border Protection [[2017] HCA 34] — Referred to in the majority's analysis.
• referred Crisp & Gunn Co-operative Ltd v Hobart Corporation [[1963] HCA 55] — Referred to in the majority's analysis of the trust deed provisions.
• referred Pavey & Matthews Pty Ltd v Paul [[1987] HCA 5] — Referred to in the majority's analysis.

• Income Tax Assessment Act 1936 (Cth) s 109D(3) — The inclusive definition of 'loan' still requires some form of obligation to repay an amount or value supplied. This is expressly so in s 109D(3)(a), (c) and (d), and implicitly so in s 109D(3)(b). The definition is not limited to transfers of money but extends to any transfer of value burdened with an obligation of repayment. [[72], [73], [74], [76]]
• Income Tax Assessment Act 1936 (Cth) s 109D(3)(b) — 'Provision of credit or any other form of financial accommodation' requires some initial or anterior transfer of value or the supply or grant of pecuniary assistance involving bilateral activity. Mere inactivity by a private company beneficiary — failing to demand payment of an unpaid present entitlement — does not satisfy this limb. [[72], [73]]
• Income Tax Assessment Act 1936 (Cth) s 109D(3)(d) — Simply doing nothing, or acquiescing to the retention of funds, is not a 'transaction which in substance effects a loan of money'. The word 'transaction' refers to some interchange or interaction between entities. [[74]]
• Income Tax Assessment Act 1936 (Cth) s 109D(1) — The operative provision deeming loans as dividends requires the company to 'make' a loan, implying active conduct by the private company to move value from it to someone else. [[72]]
• Income Tax Assessment Act 1936 (Cth) s 109F(6) — Deems a debt forgiven when a reasonable person would conclude the company will not insist on payment. Its presence is inconsistent with construing s 109D(3) as applying to mere forbearance, because on the Commissioner's approach a deemed dividend would arise under s 109D at the same time as a deemed forgiveness under s 109F(6). [[77], [78]]
• Income Tax Assessment Act 1936 (Cth) s 109XA(2) (Subdivision EA) — The legislative history and context of Subdivision EA demonstrates Parliament's deliberate choice to tax the shareholder or associate who receives the economic value of unpaid present entitlements, rather than treating the entitlements themselves as loans under s 109D(3). The Commissioner's construction was inconsistent with this legislative choice. [[79], [80], [81], [82], [83], [84]]
• Income Tax Assessment Act 1936 (Cth) s 95(1) — The statutory definition of 'net income' of a trust estate provides a clear formula enabling identification of a sum of money held by the trustee in each year. It is sufficient to identify with certainty the property which is the subject of separate trusts created by a resolution to set aside defined percentages of net income. [[48], [49], [50]]
• Income Tax Assessment Act 1997 (Cth) s 6-25(1) — The notice of contention based on s 6-25(1) was not reached by the majority. Jagot J held the amounts were not the 'same amount' — differing in quantum and concept — and thus s 6-25(1) did not exclude the deemed dividends. [[86], [191], [192]]

This decision resolves a question of major practical significance for the taxation of discretionary trust structures involving corporate beneficiaries. The Commissioner's position — that unpaid present entitlements of a private company beneficiary constituted 'loans' under s 109D(3) — would have exposed corporate beneficiaries to deemed dividend treatment under Division 7A whenever trust distributions remained unpaid. The majority's rejection of that position confirms that Division 7A requires active conduct by the private company to transfer value; passive inactivity is insufficient. The decision also establishes important trust law principles: that 'set aside' resolutions under trust deeds with separate trust provisions do not create unconditional payment obligations, and that net income defined by reference to s 95 of the ITAA 1936 provides sufficient certainty of subject matter for separate trusts. The legislative history analysis reinforces that Parliament's chosen mechanism for addressing unpaid present entitlements is Subdivision EA — which taxes the shareholder or associate who receives the economic benefit — not the broader loan provisions of s 109D. Practitioners should note the majority's refinement of the Full Court's reasoning: s 109D(3) is not limited to transfers of money but extends to any transfer of value burdened with an obligation of repayment, broadening the potential reach of the provision in other contexts while narrowing it in the unpaid present entitlement context.

• Trust deed drafting: The decision confirms that a resolution to 'set aside' net income under a trust deed with a separate trust provision (such as cl 3(5) here) does not create an unconditional duty to pay. Practitioners should review trust deed language carefully — the distinction between 'set aside', 'pay' and 'apply' is determinative of whether a debtor/creditor relationship arises.
• Unpaid present entitlements: Corporate beneficiaries of discretionary trusts are not exposed to deemed dividend treatment under s 109D merely because trust distributions remain unpaid, provided no debtor/creditor relationship has arisen. The critical question is whether the beneficiary has called for payment or the trustee has admitted indebtedness.
• Trustee accounting: Equivocal accounting entries do not constitute an admission of indebtedness sufficient to overlay the trustee-beneficiary relationship with a debtor-creditor relationship. Practitioners should ensure trust accounts do not inadvertently express an unconditional obligation to pay.
• Subdivision EA remains the primary mechanism: Where unpaid present entitlements are in substance lent or paid to a shareholder or associate of the private company beneficiary, Subdivision EA (s 109XA) is the applicable taxing provision, not s 109D.
• Scope of s 109D(3): The majority broadened the Full Court's reasoning — s 109D(3) is not limited to transfers of money but extends to any transfer of value (including property or services) burdened with an obligation of repayment. This may have implications for non-monetary arrangements between private companies and trusts.
• Separate trusts and certainty: Net income defined by reference to s 95 of the ITAA 1936 provides sufficient certainty of subject matter for separate trusts. Physical segregation of specific assets is not required.
• The 5-2 split: Jagot J and Beech-Jones J dissented on different bases. Jagot J favoured a broader reading of 'financial accommodation' not requiring bilateral activity. Beech-Jones J would not have departed from the factual basis below and held that giving time to pay a debt constitutes financial accommodation. The dissents may inform future legislative reform.

• [[2016] HCA 11]
• [[2001] HCA 68]
• [[2025] FCAFC 15]